The Grind of Forex Trading, A Beginner’s Guide to Trading Forex, Understanding the Average Directional Index (ADX)

Happy Sunday,

Welcome to this week’s edition! We’ve packed it with valuable insights to help you on your trading journey. This week, we’re breaking down the reality of forex trading and why consistency matters, exploring the fundamentals of how to trade forex, and diving into the Average Directional Index (ADX) to help you measure trend strength like a pro. Let’s get started and take your trading skills to the next level!

This week’s edition:

🧠 The Grind of Forex Trading

📈 A Beginner’s Guide to Trading Forex

🚀 Understanding the Average Directional Index (ADX)

Many traders, especially beginners or those facing losses, fall into the "jackpot mindset"—believing that one big trade will make them rich. But the truth is, forex trading isn't about hitting a home run; it's about consistent, small wins.

Think of trading like a long-term grind, much like an athlete’s journey. Take NBA player Jeremy Lin, for example. His game-winning three-pointer against Toronto was thrilling, but his success didn’t come from that one shot. It was years of practice, discipline, and grinding through setbacks that prepared him for that moment.

Trading works the same way. You might land a huge trade occasionally, but that’s only because your daily efforts put you in the right position. Consistency is key—building skills, analysing the market, and making steady progress.

Just like Lin started at the end of the bench and even got sent to the developmental league multiple times, traders face tough times. Losses will happen. But persistence, learning, and refining your strategy will make the difference.

Avoid the "jackpot" mentality. Instead, focus on small, steady gains. Over time, these add up to long-term success and financial growth. Keep grinding, stay patient, and the rewards will follow!

Forex trading is an exciting and dynamic way to participate in the global currency market. Traders can invest or speculate on currency price movements through different financial instruments, including forex futures, options, exchange-traded funds (ETFs), contracts for difference (CFDs), and spot forex trading. Let’s explore these methods!

Forex Futures

Futures contracts allow traders to buy or sell a currency at a predetermined price on a future date. These contracts are standardized and traded on regulated exchanges like the Chicago Mercantile Exchange (CME), providing transparency and security.

Forex Options

Options give traders the right (but not the obligation) to buy or sell a currency at a specific price before a set expiration date. While options offer flexibility, they have limited market hours and lower liquidity than futures or spot forex trading.

Currency ETFs

Exchange-traded funds (ETFs) allow investors to gain exposure to a currency or a basket of currencies without directly trading forex. ETFs can be used for speculation, portfolio diversification, or hedging against currency risks. However, they have limited trading hours and additional fees.

Spot Forex Trading

The spot forex market operates 24/5 and involves direct currency exchanges without a central exchange. Transactions are conducted electronically or via phone, with most trades happening in the interbank market. Retail traders access this market through forex brokers who provide leverage for larger trades.

Forex CFDs & Spread Betting

Contracts for Difference (CFDs) and spread betting enable traders to speculate on currency price movements without owning the underlying asset. CFDs are widely used outside the U.S., while spread betting is popular in the UK but restricted in the U.S.

No matter the method, forex trading requires knowledge, strategy, and risk management. Choose the right approach that fits your trading style!

The Average Directional Index (ADX) is a powerful tool used by traders to measure trend strength, not direction. Developed by J. Welles Wilder, the ADX helps identify whether a market is trending or ranging, making it a valuable filter for different trading strategies.

How ADX Works

The ADX ranges from 0 to 100, with higher values indicating stronger trends:

• 0-20: Weak or no trend

• 25-50: Strong trend

• 50-75: Very strong trend

• 75-100: Extremely strong trend (rare)

A reading above 25 suggests a trending market, while a reading below 20 signals little to no trend.

Using ADX in Trading

• If ADX rises, the trend is strengthening.

• If ADX falls, the trend is weakening, signaling potential consolidation or reversal.

• A prolonged ADX value below 20, followed by a rise, may indicate the start of a new trend.

Unlike other indicators, ADX does not determine whether a trend is bullish or bearish—it only measures trend strength.

How ADX is Calculated

The ADX is based on two directional indicators:
✔ +DI (Positive Directional Indicator) – measures upward movement
✔ -DI (Negative Directional Indicator) – measures downward movement

The ADX value is derived from the difference and sum of +DI and -DI, followed by smoothing the results using a moving average (typically over 14 periods).

By combining ADX with other technical tools, traders can filter out weak trends and align strategies with market conditions, improving their trading decisions!